Chapter 11 book

Question 1

allocation of the cost of natural resources

Answer 1

depletion

Question 2

cost allocation for intangibles

Answer 2

amortization

Question 3

for assets used in the amnufacturing of a product, depreciation, depletion, or amortization is considered a

Answer 3

product cost

Question 4

for assets not used in production, primarily plant and equipment and certain intangibles used in the selling and administrative functions of the company, depreciation and amortization are reported as

Answer 4

period expenses in the income statement

Question 5

3 factors of cost allocation

Answer 5

1. service life
2. allocation base
3. allocation method

Question 6

the estimated use that the company expects to receive from the asset

Answer 6

service life

Question 7

the cost of the asset expected to be consumed during its service life

Answer 7

allocation base

Question 8

the pattern in which the allocation base is expected to be consumed

Answer 8

allocation method

Question 9

the amount the company expects to receive for the asset at the end of its service life less any anticipated idsposal costs

Answer 9

residual value

Question 10

allocation base equation

Answer 10

allocation base =
cost of the asset - estimated residual value

Question 11

2 allocation method approaches

Answer 11

1. time based methods
2. activity based methods

Question 12

allocate the cost base according to the passage of time
which allocation method is this?

Answer 12

time based methods

Question 13

allocate an assets cost base using a measure of the assets input or output
which allocation method is this?

Answer 13

activity based methods

Question 14

natural resources typciall follows an ____ based approach

Answer 14

activity

Question 15

amortization of intangibles typically follows a _____ based approach

Answer 15

time

Question 16

allocation of an equal amount to each yeaer

Answer 16

straight line method

Question 17

represents the cumulative amount of the assets cost that has been depreciated in all prior years including the current year

Answer 17

accumulated depreciation

Question 18

book value equation

Answer 18

book value =
assets cost - accumulated depreciaton

Question 19

the assets reported amount in the balance sheet

Answer 19

book value

Question 20

entry to record depreciation at the end of each yeaer using straight line effects assets and expenses how on the balance sheet

Answer 20

• total assets decrease
• total expenses increases

Question 21

accelerated depreciation methods report higher depreciation in

Answer 21

earlier years

Question 22

double declining balance method equation

Answer 22

double declining balance method =
assets beginning of year book value * (double the straight line rate)

Question 23

sum of years digits method equation

Answer 23

sum of years digits method =
depreciable base * service life/service life years added up)
- 5 year service life
- 210,000 * 5/15
- 5 + 4 + 3 + 2+ 1 = 15

Question 24

many companies switch from this depreciaion approach to this after the first half of the assets service life

Answer 24

accelerated to straight line

Question 25

units of production method equation

Answer 25

units of production method = depreciable base / # of units expected to be produced then that number * actual activity

Question 26

which method is superior but not practical

Answer 26

activity based

Question 27

straight line method produces ____ net income than accelerated methods in the early years of an assets life

Answer 27

higher

Question 28

the allocation of intangible asset cost

Answer 28

amortization

Question 29

intangible assets with finite useful llives will be

Answer 29

amortized

Question 30

intangible assets with indefinite useful lives will

Answer 30

not be amortized

Question 31

estimated useful life is limited in nature

Answer 31

finite

Question 32

expected residual value of an intangible asset usually is

Answer 32

0

Question 33

for intangibles used in the mannufacturing of a product, amortization is a

Answer 33

product cost and is included in the cost of inventory

Question 34

for intangible assets not used in production, amortization is a

Answer 34

period cost

Question 35

any software development costs incurred after the point of technological feasibility and before the product is available for sale is

Answer 35

capitalized

Question 36

capitalized software development costs are amortized based on whichever of the two methods

Answer 36

produces a greater amount

Question 37

2 methods of capitalized software development costs are amortized

Answer 37

1. the ratio of current revenues to current and anticipated revenues 2. the straight line method based on the estimated useful life of the asset

Question 38

no legal, contractual, or economic factors that are expected to limit their useful life to a company

Answer 38

indefinite

Question 39

indefinite live intangible assets are not subject to

Answer 39

periodic amortization

Question 40

_____ are considered to have indefinite useful lives

Answer 40

trademarks

Question 41

_____ is the most common intangible asset with an indefinite useful life

Answer 41

goodwill

Question 42

_____ is an intangible asset whose cost is not expensed through periodic amortization

Answer 42

goodwill

Question 43

a change in estimate should be reflected in the financial statements of the

Answer 43

current periods and future periods

Question 44

when a company changes depreciation method, the change will be effective for what assets

Answer 44

assets placed in service after that date - do not require revision of past schedules

Question 45

an asset _______ should be written down if there has been a significant impairment of value

Answer 45

held for use

Question 46

2 guidelines for an asset to be helf and used

Answer 46

1. ppe and intangible assets with finite useful lives 2. intangible assets with indefinite useful lives

Question 47

ppe and finite life intangible assets are tested for impairment only when

Answer 47

events or changes in circumstances indicate book value may not be recoverable

Question 48

2 step process to determine that the asset will be disposed of significantly before the end of its estimated useful life

Answer 48

1. recoerability test 2. measurement

Question 49

an impairment occurs when the undiscounted sum of estimated future cash flows from an asset is less than the assets book value which of the 2 steps to determine if impairment loss has occurred

Answer 49

step 1: recoverability test

Question 50

if the recoverability test from step 1 indicates an impairment has occurred, an impairment loss is recorded for the amount by which the assets fair value is less than its book value which of the 2 steps to determine if impairment loss has occurred

Answer 50

step 2: measurement

Question 51

a. a significant decrease in market price b. significant adverse change in how the asset is being used or in its phsyical condition c. a significant adverse change in legal factors or in the business climate d. an accumulation of costs significantly higher than the amount originally expected for the acquisition or construction of an asset e. a current period loss combined with a history of losses of a projection of continuing losses associated with the asset f. a realization that the asset will be disposed of significantly before the end of its estimated useful life

Answer 51

events that would cause the investigation of an impairment

Question 52

1. an extension of the useful life of the asset 2. an increase in the operating efficiency of the asset resulting in either an increase in the quantity og goods or services produced or a decrease in future operating costs 3. an increase in the quality of the goods or services produced by the asset

Answer 52

ways expenditures related to assets can increase future benefits

Question 53

expenditures that increase future benefits should be

Answer 53

capitalized initially then expensed in future period through depreciation, depletion, or amortization

Question 54

many companies do not capitalize any expenditure unless it exceeds a predetermined amount that is considered

Answer 54

material

Question 55

4 classifications of subsequent expenditures

Answer 55

1. repairs and maintenance 2. additions 3. improvement 4. rearrangements

Question 56

expenditures for repairs and maintenance generally are expensed

Answer 56

when incurred

Question 57

the cost of additions usually are

Answer 57

capitalized over the remaining useful life of origianl asset or own useful, whichever is shorter

Question 58

the costs of improvements usually are

Answer 58

capitalized over the useful life of the improved asset

Question 59

expenditures made to restructure an asset without addition, replacement, or improvement not to extend its useful life

Answer 59

rearrangements

Question 60

the costs of material reaarangements should be capitalized if they clearly

Answer 60

increase future benefits and over the future periods benefited

Question 61

the costs incurred to succesfully defend an intangible right should be

Answer 61

capitalized

Question 62

the costs incurred to unsuccessfully defend an intangible right shoule be

Answer 62

expensed